Is your super doing dirty work?

You know the global fossil fuel divestment movement is having an impact when Catholic organisations make public their decisions to divest, as has happened on the anniversary of Pope Francis' encyclical, Laudato Si'.

An accelerating number of institutions and individuals are moving their money out of planet-heating fossil fuels and into climate solutions. The total assets guided by some form of divestment policy was $3.4 trillion at 2 December last year, 50 times more than what was up for divestment 12 months earlier.

It sounds like a lot of money, but it's a small amount compared to the $100 trillion-plus invested in the usual way. That's our money — yours and mine — in banks and super funds, managed funds and insurance companies.

Most funds managers follow the conventional investment wisdom and the professional practises which they see in other fund managers. Like the rest of us, they're reluctant to go against existing trends.

That's despite the fact that, whether your priority is ethics or maximising returns, the reasons to think outside the box are multiplying by the month. Let's start with ethics.

Ethical reasons to divest

Most of us know that burning coal, oil and gas is a major contributor to global warming, along with animal agriculture and forest clearing. It's also becoming appreciated that 80 per cent of fossil fuel reserves must stay in the ground if we are to avoid catastrophic climate disruption. Ethically, this knowledge changes everything. Climate-related extreme weather events and sea level rise are already hitting vulnerable communities, and coming generations will be left with an unthinkable future.

Ursula Rakova of the Carteret Islands organises the relocation of islanders from their atoll to Bougainville. In her speaking tour in April she said that her homeland is paradise, but they are being driven out by the salination of soils and fresh water sources. At first the islanders thought the 'spirits were angry' with them, but they now realise they are subject to forces created by others.

The urgency of the need to move away from fossil fuels has been championed by moral leaders such as Pope Francis in Laudato Si' and Archbishop Desmond Tutu. Faith-based institutions were prominent in the first wave of the fossil fuel divestment movement.

Funds managers of some faith-based institutions today insist that shareholder advocacy is more in keeping with Christian ethics than divestment. However, there is no evidence that even the most determined advocacy will deliver the changes needed in the required time frame, according to DivestInvest which has documented a raft of examples. To the contrary, evidence is piling up that fossil fuel companies have been secretively doing all they can to promote climate denialism and frustrate legislation which would favour renewables. In my view, the ethical response to this level of moral bankruptcy is to 'shake the dust off your feet'.

Financial reasons to divest

The world's energy market is in transition. While coal prices are in free-fall, solar is the fastest-growing power source around the world. Solar module prices have fallen 75 per cent in five years, with solar achieving grid parity in many places. IEA's World Energy Outlook 2015 report documents that renewable energy is already the second-largest generator of electricity in the world and will overtake coal by 2030. Africa, China, parts of South America and India are expected to leapfrog the dirty development of the West. The economic forces towards decarbonisation of the global economy are now unstoppable.

Climate risk is also affected by political factors which are pushing for regulation to limit greenhouse pollution. Public demand for climate action was a driver behind the successful outcome of COP21, which in turn has given momentum to global efforts to curb emissions. Feeding into this public demand is the rising concern in many countries around the health impacts of dirty energy-related air pollution.

Already the results are showing up in returns for investors. The well-respected MSCI performance index demonstrates that investments excluding fossil fuels have produced better returns in recent years than those which have not. And yet, fund managers hold on to the old ways. At a Divest-Invest Conference hosted on 5 April by the Climate Institute, former prime minister John Hewson expressed exasperation that 'financial markets consistently underestimate risk'. Hewson believes climate risk is currently higher than the risk of a sub-prime crisis before the Global Financial Crisis!

Funds will heed members

There are a few reasons why readers may want to take action with their superannuation fund in particular. Super funds hold disproportionate amounts of savings and have most reason to be future-oriented, and alternative super funds are out there for disgruntled members who prefer to go fossil free. Super funds tend to be sensitive to the views of members. Question them and, if you don't like the answers you receive, check out Market Forces' Super Switch site.

The Australian Religious Response to Climate Change (ARRCC), of which I am president, is focusing its interest on just one fund for the time being — Catholic Super. Readers who are members of Catholic Super may wish to express their concern by sending an email to the CEO via the ARRCC website.

Thea Ormerod is President of Australian Religious Response to Climate Change.

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Great article Thea. My super fund is HESTA which mainly covers workers in the health sector. Unfortunately it is hard to get clear information on what holdings they have in fossil fuels. I'd like to see greater transparency become a requirement so that it is easier for people to make an informed choice. HESTA seems opposed to divestment in their main funds which is disappointing, especially given the workers they represent. Catherine | 21 June 2016

I thought that super funds exist to secure us decent living standards after we retire and not to fight the climate change battles. You cannot kill two birds with one stone.Chris | 21 June 2016

Thanks Thea.
Saw Barnaby Joyce last night on 4 Corners and many questions were asked about Climate Change but he was silent! What if Climate Change was a violation of defined Human Rights? Some Solomon Islands are already partially under water. Brian Kennedy | 21 June 2016

Thanks Thea.
I had the opportunity to divest carbon interests from my super portfolio some time ago. I'm pleased I did. I'd encourage others to follow suit.Tony Walters | 21 June 2016

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